KUALA LUMPUR, Oct 15 — Maybank Investment Bank Bhd (Maybank IB) had revised upwards its gross and net for Malaysian Government Securities (MGS) and Government Investment Issues (GII) supply forecast to RM186 billion and RM105 billion, respectively, in 2023.

"We revised up the gross MGS and GII supply markedly to RM186 billion from RM172 billion for 2023 partly due to the absence of positive fiscal surprise but mostly because of more MGS and GII issuances to fund a big run-down in outstanding Treasury bills (T-bills) by an estimated RM11.5 billion this year.

"This is as the government intends to reduce refinancing risk by reducing funding via short-term papers, even though T-bills only account for less than three per cent of the total outstanding ringgit government debts,” the research house said in a note today.

As for net MGS and GII supply, Maybank IB expected it to total RM105 billion, which is also a record.

It added that while the larger-than-expected auction sizes recently did raise questions on upside risk to the MGS and GII supply, the pace of the planned reduction in T-bills is rather sharp.

"The outstanding T-bills have only dropped by RM1 billion year-to-date, meaning an additional RM10.5 billion cut should come in the remaining 2.5 months. We expect a gross and net MGS and GII supply of RM42 billion and RM26.5 billion in the fourth quarter of 2023 (4Q 2023).

"We estimate issuance size of RM5.0 to 5.5 billion in the remaining auctions,” it said.

On a positive note, Maybank IB said most T-bills are likely held by banks, and the net redemptions will be channelled to banks, which could help partially alleviate the current tightness in interbank liquidity or support reinvestment demand for short-tenor MGS and GII in 4Q 2023.

The research house forecasts a gross MGS and GII issuance of RM178 billion in 2024 to fund the RM85 billion budget deficit and RM93 billion maturities, and net supply is expected to fall to RM85 billion.

It said that issuance currency is likely to be fully in ringgit, and there will be no US dollar bond maturities in 2024.

"Like 2023, a key upside risk to our bond supply forecast next year is whether the outstanding T-bills will be reduced further.

"We expect outstanding T-bills to be trimmed to RM20 billion by end-2023, small (less than two per cent) relative to the outstanding government debts but still higher than pre-Covid level, which is less than the RM10 billion,” it said.

Maybank IB also viewed that the government’s plan to reduce the deficit to RM85.4 billion or 4.3 per cent of Gross Domestic Product (GDP) in 2024 is insufficient to cut the debt ratio but remains committed to medium-term fiscal consolidation.

It said that for 2023, the budget deficit is expected to be in line with the official target at RM93.2 billion or five per cent of GDP and for 2024, the government plans to reduce the deficit further to RM85.4 billion or 4.3 per cent of GDP.

"While the planned reduction matches the path outlined in the last medium-term Fiscal Framework, the amount of cut is not significant considering that Budget 2023 included some allocation to the 1Malaysia Development Bhd (1MDB) US$3 billion bond repayment.

"Between supporting growth and fiscal consolidation, the priority still skews slightly to the former, in our view,” it added. — Bernama